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JOHN KING, HOST: Thanks Suzanne and good evening everyone, big breaking news tonight to close out an already dramatic week in politics. I'm told by two GOP sources that Republican Senator Lisa Murkowski of Alaska, who lost to a Tea Party candidate in the primary last month, is planning to mount a write-in campaign in a long shot bid to keep her seat. Senator Murkowski's announcement is scheduled later tonight, just as her arch rival in Alaska politics, Sarah Palin, is delivering a big speech in the kickoff presidential caucus state Iowa.

The stakes here though go well beyond the personal rivalry between Senator Murkowski and Governor Palin. It's another eruption of the tensions between the Tea Party and the Republican establishment and it's the second big threat this week to Republican hopes of winning enough seats to take control of the Senate. Let's begin tonight with the breaking news as we break down a big day and a big week in politics.

Democratic strategist James Carville joins us from New Orleans. Our senior political analyst David Gergen is in Boston. "TIME" magazine's Joe Klein, he's in the middle of a cross-country conversation with voters and tonight he's in Iowa. And with me here in Washington conservative Bill Bennett, host of "The Morning in America" radio program. James Carville, I want to start with you first in the sense of just with Murkowski mounting a run-in bid, write-in bid, these Tea Party establishment Republican tensions, what is in the water this year?

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Well, you know, we have an economy that's bad and we have wars that are not going very well and over a period of time it produces great turmoil. We're seeing great turmoil in the system. Look, the Tea Party and the Republican Party has more influence than organized labor and African Americans have combined in the Democratic Party. Forty-eight percent of the Republicans identify with them. So it's not in that they're highly energized, and it's not surprising if you step back from it that they're doing very well in these Republican primaries and they're causing a lot of heartburn over there (INAUDIBLE).

KING: But David Gergen, for a sitting member of the Senate Lisa Murkowski, she loses about three weeks ago. She thinks about this. Now she is going to run a write-in campaign. Not since Strom Thurmond in the middle 1950's has anyone been elected to the Senate at a write- in campaign, so you have to assume that she knows the odds are incredibly long, and yet she wants to do this. DAVID GERGEN, FORMER PRESIDENTIAL ADVISER: It's a bizarre year, isn't it, John? And there's no question that if she gets in, it could easily split the Republican vote and allow that seat to become a Democratic seat. That would be a major -- a second potential major loss for Republicans this week. So there is -- there's a -- from a Republican standpoint just trying to gain seats, gain power in the Senate, I think this is a setback for the party overall.

But it obviously reflects that this is a volatile year. She thinks she's got a shot and clearly there's something very personal about this. And there's a sense of Hatfields versus McCoys in all this.

KING: There is a Hatfield versus McCoy. Let me go to the "Magic Wall" to underscore the stakes David just mentioned. If you're sitting at home saying why do I care about an Alaskan Senate race, let me show you this in context. The Republicans need 10 seats -- 10, a pick up of 10 to get control of the Senate.

These are 13 states highlighted. These are all democratically held right now. All 13 of these seats are held by Democrats. The Republicans hope they can win 10 of these 13. And if they don't hold any seats they currently hold, then Mitch McConnell would be the new majority leader and Republicans would control the Senate. However, they do have a seat in Florida now held by Republicans.

That's one at risk, a three-way contest down there. Some Democrats think there's a potential they could pick up a New Hampshire seat, just had the primary there this week, probably not, but that one could be in play. And now Alaska complicates things. Lisa Murkowski very unlikely most Republicans say that she could win a write-in campaign. But what if the Tea Party candidate gets one slice of the right, Lisa Murkowski she gets another slice of the right.

Then you could have a Democratic candidate win that seat. Bill Bennett, as a Republican when you watch the tensions between the Tea Party and the establishment and when you watch the view of many Republicans this week, the long shot already hopes of getting the Senate start to melt away. What's happening?

WILLIAM BENNETT, NATIONAL TALK RADIO HOST: Are you trying to bait me by calling me a Republican rather than a conservative?

KING: Aren't you both?

BENNETT: Yes, I am. And (INAUDIBLE) give you a good laugh out there. I think it's all good. Look, it's not all good. I hope Murkowski doesn't do this because the risk you describe is very real. But what are we talking about? Maybe seven seats, maybe eight seats, maybe nine seats, it's a very good year for Republicans, a very good year for conservatives. This is a big party.

This is what happens when the party gets bigger and gets divisions. This is also what happens when a lot of people at the base feel that the Republican Party turns its back on basic principles. Lisa Murkowski's been there a while. There's the sense of entitlement at the Murkowski seat, but this guy came along and pushed her out of the way, so I -- look, I hope we gain control of the Senate but look at the larger context. This is going to be a big Republican conservative wave.

KING: Joe Klein, you're in two great spots for me to have this conservation with you tonight. Number one, you're at this dinner where Sarah Palin will speak in a little more than hour out in the state of Iowa and you know as well as I do her blood feud with the Murkowski family.

Number two, you're in the middle in this cross country drive and I've been reading all your postings. In a sense, you're talking to voters who are looking at this ideological screaming match going on across the United States of America between the parties and within the parties and a lot of them are saying what about me.

JOE KLEIN, POLITICAL COLUMNIST, TIME MAGAZINE: That's exactly right. Now, you've got to notice what Bill Bennett just did. It's a very interesting and very intelligent thing. The Republicans throughout this year have been playing the stupidest politics I've ever seen in a midterm election. They're claiming that they're going win the House.

They're claiming that they're going to win the Senate. They could win 38 seats in the House and it will be seen as a catastrophe because they didn't overcome. They can win as Bill Bennett just said six or seven seats in the Senate. Excellent year, but it will be seen as a loss because they didn't take the majority. I just -- you know I've been around too long but I don't understand the Republican strategy this year.

As for the folks, as for the people that I've been meeting with they don't understand either the Democrats or the Republicans. They are not, you know, fist-shaking Tea Party angry, but they are very anxious and very concerned. They really don't like the bailouts. They're really confused about the stimulus. And who knows what this health care plan is about.

But it's a really -- the public is in a very thoughtful introspective and interested mood right now, not too pleased with the Obama administration but not too pleased with the Republicans either, especially when you see games like the ones that's going on in Alaska happening.

KING: And so in the middle of this is voters, especially those who haven't made up their minds yet, people in maybe it's a shrinking center, but in the center of American politics look at this. Today there was a fascinating display. This annual event here in Washington, the Values Voters Summit in Washington, usually it is the states for the Christian conservatives who for so long have had so much power and influence in the Republican Party.

Overshadowed quite a bit this year by the Tea Party movement and so today we saw what some think as a shotgun wedding of sorts, people coming in and preaching the value of the Tea Party before these Christian conservatives. At center stage today, Christine O'Donnell, who has been the big story all this week before tonight's breaking news because of her big upset. Now she is a Tea Party favorite, just won a Republican Senate nomination in Delaware but, but she previously worked for a conservative group in the Christian conservative movement. Listen to Christine O'Donnell speaking at this conference.

(BEGIN VIDEO CLIP)

CHRISTINE O'DONNELL (R), DELAWARE SENATE CANDIDATE: The small elite don't get us. They call us whacky. They call us wing nuts. We call us we the people. We don't always agree. We don't always share the same strategy memos. We don't always endorse the same candidates or speak off the same talking points. We're loud. We're ratty -- we're rowdy. We're passionate.

(END VIDEO CLIP)

KING: Is this, Bill Bennett, in some ways a shotgun wedding in the sense that if you go to Tea Party rallies a lot of them are conservative on the social issues but they're libertarian in the sense that they don't want constitutional amendments. They don't want the Congress debating these issues. If they're going to be debated they want them debated back home in their state Capitol, not by people here in Washington.

BENNETT: Yes, but there are an awful lot of conservatives in America. There are a lot of people who identity themselves as conservative, 35 percent, something like that, and they would agree both with the comments that Christine O'Donnell made today and with the basic tenets of the Tea Party movement.

They think government is too big and they believe in traditional values. That defines an awful lot of people. So I don't think you're really forcing it. For some people they're going to have to choose. The bumper sticker I come up with and I appreciate Joe Klein's comments, lower expectations. It's not that people are greatly enthusiastic about us or about conservatives, but they're saying now if there's a bumper sticker is, not sure, but not this. They know they don't want what they've got now and we're the alternative.

KING: If you take away -- take away -- David to you first -- if you take away the anti-Obama, anti-Democratic, anti-Washington, anti- spending energy in the -- on the right, can those two movements stay together? Could they co-exist if you didn't have the negative energy toward the Democrats?

GERGEN: John, you're talking about such a huge force (INAUDIBLE). If you take away that, I'm not sure what there is left this year. Look, look, I think what's been interesting about this values conference today -- and I wasn't there -- and by the way, I think Bill Bennett's book was on sale there today. I'm sure he sold a lot.

BENNETT: I'm addressing it tomorrow. I'll be there.

GERGEN: Oh, you are, OK. Well you've got a double hitter here. The -- let's -- I think what's interesting, John, is the way they're squaring the argument. And we just -- Christine O'Donnell has been doing that for days now and seeing her stand up there, boy, talking about Palin 2.0, watching her on television, didn't that remind you of someone else?

But they've been squaring the argument by saying look, if you're going to have a strong economy you've got to have strong families. You're got to have strong moral values. And therefore these issues are actually quite consistent and that has not always been the sort of (INAUDIBLE) driven home that point very well in the past.

For them to stand up there and try to join together, I thought was smart for political purposes. Go to Joe Klein's point, this has been a -- in many ways stupid Republican mistakes here but on this issue, I thought they were showing some -- showing some shrewdness.

KING: I'm going to ask everyone to stand by. We need to work in a quick break, but David just mentioned Palin 2.0. That's Christine O'Donnell he says. When we come back, the original Joe Klein is in a room where she will speak in just a little bit. We'll talk about her impact. The White House weighed in today. Stay right there.

(COMMERCIAL BREAK)

KING: Got a fabulous group on hand on a big night in politics. Let's continue the conversation. I'm John King in Washington. Joe Klein is out in Iowa. He's in a room where Sarah Palin will speak in a little bit. It's called the Ronald Reagan dinner. Remember Ronald Reagan, Bill Bennett? Ronald Reagan helped the lead the Republican Party back, way back in 1980, at a time when people said it was lost in the wilderness. Is Sarah Palin, is that her goal now? At the White House briefing today Robert Gibbs seemed to think so.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I have no doubt that she is a formidable force in the Republican Party and may well be, in all honesty, the most formidable force in the Republican Party right now.

(END VIDEO CLIP)

KING: Joe Klein as you're in that room waiting for Sarah Palin to speak tonight at the Ronald Reagan dinner, is that what people in that room think, that she's there because she'll be back soon saying vote for me?

KLEIN: Well they always think that in Iowa, don't they John? You've been out here. But I think that this room, this Republican Party is perfectly matched for Sarah Palin because it is a very religious conservative evangelical party. Those sorts of people always do well in the Iowa caucuses. So, you know, I don't know what she's going to do, but, you know, this is certainly the sort of thing that you see a politician who's running for president doing all the time.

KING: And, Bill Bennett, after the last presidential election people scoffed at the notion that Sarah Palin could come back. They say she didn't perform very well. People in the suburbs didn't like her, but if you look at the terrain this year, what has happened, the Tea Party success coast to coast and state after state, you'd have to say you discount her at great risk.

BENNETT: Well you do, certainly in terms of excitement and buzz, certainly in terms of turning out a crowd, which is what they want to do at this dinner, and lots of other places that have invited Sarah Palin. I understand her national ratings aren't so good. But she is a star. She looks great.

She sounds good. She presents herself very well. People like her and she is emblematic of the kind of excitement and passion and some of the resentment about what is going on in Washington that so many people feel. So whether people would vote for her for president or not her message carries further than that.

KING: And the question, James and David, is can the Democrats somehow change the dynamic and the discussion in our politics? One way to do it would be to keep that Senate seat in Delaware, not allow Christine O'Donnell to not only shock the system this week, but to shock the system and the country again in November. I want you to listen here. Chris Coons is the Democratic candidate and the man who held that seat for 36 years, now the vice president of the United States was out campaigning with Chris Coons today. But it appears to me anyway and listen to this, but Chris Coons understands this is not last year's Delaware and that he, too, better reach out to those Tea Party voters.

(BEGIN VIDEO CLIP)

CHRIS COONS (D), DELAWARE SENATE CANDIDATE: We hear a lot of frustration, a lot of anxiety. Folks agree with many that the administration has made great progress, but we have not yet gotten the change that we all voted for in 2008.

(END VIDEO CLIP)

KING: James Carville, he's standing next to the vice president of the United States saying we have not gotten the change we voted for in 2008.

CARVILLE: Right. Well, John, you know it's not fair. They get to talk about Sarah Palin, and I get to talk about Chris Coons.

(LAUGHTER)

(CROSSTALK)

UNIDENTIFIED MALE: There we go.

(CROSSTALK)

CARVILLE: No, I think -- I think he recognized -- I think he's recognizing the reality, you know, look the reality is, is that we're you know a one-track (ph) country now and you know he understands that, and I think the guy -- what the guy said is effective and from -- it makes sense. I mean you can't go out and -- we've been saying this (INAUDIBLE). You can't go out and convince people that everything is working because they don't believe that. So, you know, you've got to draw some contrast. I think he'll do fine.

KING: David Gergen and then Joe Klein, if I can sneak you in quickly I will. I want you to both listen to Bill Clinton last night on the "Jon Stewart Show", explaining how he sees this election playing out from now until Election Day and the challenge he says faces President Obama.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: I don't think I did a very good job of explaining -- but what we had done, but we had a version of what he's facing now, which is that we had done things that were bringing the economy back but no one felt it yet, and that's true here on --

(END VIDEO CLIP)

KING: David Gergen, President Clinton there talking about his failure to break through in 1994 when the Democrats of course lost both the House and the Senate.

GERGEN: He's absolutely right, but the people didn't see it -- how big the wave was that was coming. This time people see it. You know, it's been out there over the horizon for a long time now, but I think President Clinton to this day feels the justification. He had not fully communicated what he was up to and health care, he took a bath on, as you know.

And gun control, he took a bath on that, but he bounced back. I think President Obama has got a much, much tougher road figuring out how to bounce back out of this and how to govern in the next two years.

KING: And Joe Klein, about to run out of time, but quickly, the people you're talking to, they don't feel the economy is getting better, do they?

KLEIN: No, they're really worried about the economy. The thing about Clinton is that he was always a great (INAUDIBLE). Obama should be sued for political malpractice. He gave 95 percent of the American people a tax cut and none of the people I'm talking to know it. He declared recovery summer when he had no idea whether the economy was going to recover. This is amateur hour.

KING: All right, Joe Klein, David Gergen, James, thank you, Bill Bennett, thank you as well. A lot more to go in the program including when we come back you won't want to miss this. Worried about your mortgage, worried about how your credit card rates keep going up? Well when we come back "One-on-One" with Elizabeth Warren. She's the president's new choice not to head the new agency, but to build the agency that's supposed to help you with consumer protection. You won't want to miss that. And it's Friday night, so when we discuss politics tonight we'll call it movie night. It's really (INAUDIBLE) night, break out the popcorn though. Lumberjacks and politics, how do they go together? And our friend Pete Dominick, well Pete's on the street this Friday night. Yes, question time for me. Stay right there.

(COMMERCIAL BREAK)

KING: Welcome back. Let's check in with Joe Johns for the latest news you need to know right now -- hey there.

JOE JOHNS, CNN SENIOR CORRESPONDENT: Hey, John. Virginia's governor has just rejected a clemency request from a death row inmate scheduled to be the first woman executed in the U.S. in five years. Teresa Lewis (ph) is now set to die by lethal injection Thursday evening.

Six men are under arrest in Britain in connection with an alleged terrorist plot against Pope Benedict 16th. He is fine and today he became the first pope ever to pray in Westminster Cathedral.

There are two storms to keep an eye on this weekend Hurricane Karl, which came ashore about noon, is expected to cause torrential flooding in Mexico. In the Atlantic, Hurricane Igor could hit Bermuda late Sunday.

President Obama sidestepped a Senate confirmation battle today by naming Elizabeth Warren as a special adviser. She'll set up the new government's new Consumer Protection Agency.

(BEGIN VIDEO CLIP)

BARACK OBAMA (D-IL), PRESIDENT OF THE UNITED STATES: From now on consumers will also have a powerful watchdog, a tough independent watchdog whose job it is to stand up for their financial interests, for their families future.

(END VIDEO CLIP)

JOHNS: John, it seemed like he avoided a distracting a side show at a very bad time. But sometimes, you know, avoiding those side shows you end up getting a bigger side show.

KING: That's possible -- remember there's a big fight over keeping this agency in the financial overhaul bill and then a big fight over who would lead he agency. I'm going to over to the "Magic Wall" and remind people what this fight was all about and what this agency will do and what some say are banks already trying to circumvent the new law. Here's the new Consumer Finance Agency.

When it is up and running it will be housed under the Federal Reserve. It's at the Treasury now temporarily as it gets started. The idea is have a new powerhouse agency to regulate mortgages and credit cards. And it's supposed to offer overall help if you are a consumer out there with a complaint, this is supposed to be the agency that helps you. Now, what's happening though in the meantime, this law will take effect, all the financial industry knows it's coming so what have we seen happening in the interim?

Annual fees up 18 percent, foreign transaction fees up 50 percent, balance transfer fees up 33 percent, penalty interest rates, up 3.4 percent, cash advance fees you get the picture. The banks know this is coming, and they're raising fees. And so we've also seen this. You maybe get this in your statement. Bank of America raising fees for paper statements, Citibank revocable rebate offers. First Premier Bank (ph) low limit card fees and American Express, professional card fees so the banks essentially looking where are the loopholes, how can we try to increase our revenue before this new watchdog agency takes effect. Will all this stick? Will the banks face pressure? When we come back, "One-on-One" with the woman now charged with protecting your money, Elizabeth Warren.

(COMMERCIAL BREAK)

KING: Liberals love Elizabeth Warren, the financial industry, not so much. Just a short time after President Obama named her to take over, take the charge in building this new consumer protection agency, Elizabeth Warren and I sat down on the White House complex.

(BEGIN VIDEOTAPE)

KING: Just right off the bat, just answer your friends out there, your allies who are highly suspicious of this. They think the president either did this so that you're not in it for the long haul, only in this temporary presidential appointment or that he did it because he just didn't have the backbone to fight for your confirmation.

ELIZABETH WARREN, SPECIAL ADVISER TO TREASURY SECRETARY: You know, I spent a lot of time in conversation with the president over the last few weeks, and we see completely eye to eye on this consumer agency. And, remember, that's not new. This predates his becoming a senator that we have talked about this agency and what it can mean, and I am convinced that he has given me the tools needed to get the job done. So I'm going to pick them up and try to do that.

KING: Does this mean taking the presidential appointment as a special adviser that under no circumstances would you actually be the nominee down the road or is that still a possibility?

WARREN: What it means is that I'm going to focus on getting this job done starting right now. We really have the option -- and I should probably be candid about this. The nomination was on the table as something under discussion, but what nomination meant is that we spend a year and a lot of energy, fighting and number one, I don't get to talk, which bothers me (INAUDIBLE) I don't get to work and it delays that long getting started on this agency.

So instead the law is clear on this point. It says the Treasury has the power to get this agency up and running. You know, millions of American families are hemorrhaging money right now today and tomorrow and next week on tricks and traps and credit products. We're going to fix that. That's what this agency is about and we're not going to wait a year to get it started. KING: Try one more time --

(CROSSTALK)

KING: -- idea for those out there who still would like you to ultimately be the director of this agency. Is that a possibility or does this take that off the table?

WARREN: I'm sorry, but what I really want to say and what I am telling you and this is what the president and I talked about. I want to worry about Monday. I want to worry about this week and the week after, about getting this thing started. That's what this is all about. That's what he asked me to do. He gave me the tools to do it and listen to me, I am really glad to have the chance to do it. I want to do this.

KING: Students of government and conspiracy they're rifts of government always look at an appointment like this and follow the line of command. You report both to the secretary of the treasury and to the president of the United States. The last part has your friends breathe a sigh of relief. They've seen you spar with Secretary Tim Geithner from time to time. If you call three or four or five of your friends they will tell you that you've said things not completely complimentary of the treasury secretary. It tells me there's been a testy relationship there. Can this work?

WARREN: I think it can. I mean the first thing I always want to start with is I came to Washington as part of the Congressional oversight panel to do a job, and that was to be -- to ask tough questions on behalf of the American public on how T.A.R.P. money was being spent and that's what I've done. Now what the president of the United States has asked me is to join his team and try to work again on behalf of the American people to stand up this consumer agency. Now, I should be clear here. I've had many conversations with Secretary Geithner about this. You know, no one should forget when we're talking about the consumer agency that not only has the president been deeply supportive about this from the beginning, the secretary of the treasury has been very supportive about the consumer agency. He never negotiated it away, he never tried to weaken it. He was in there for a strong consumer agency from start to finish. When you share that vision with the president, with the secretary of the treasury, myself, and they're willing to say here are the tools to get the job done, then I believe it's worth picking them up and giving it a try.

KING: Why don't bankers like you?

WARREN: Well, I don't know. I thought they did. No?

KING: No.

WARREN: No. So all right, come on. I shouldn't be cute. There are bankers, sure, who don't like me. Some of them haven't met me. Some of them have seen enough. But the reality is it depends on where the problems are. There are some bankers who like me. People who want to put out good simple products that folks can understand, what the risks are, understand their risk of responsibility about whether they want to do it. Those are bankers, I think, who are going to welcome this consumer agency because they're actually going to have a better shot in a competitive marketplace when they're not competing against bankers who figured out how to make their profits on tricking people and trapping them.

KING: You talk about the importance of starting Monday.

WARREN: Mm-hmm.

KING: What's the most immediate thing? What's priority number one in terms of doing something that sends a signal to the industry and to the consumers who might be looking for help?

WARREN: There's going to be a meeting on Tuesday to start to talk about mortgage disclosures and try to work on the kinds of information that consumers get before they make a choice among mortgages. That's the sort of thing that gets the market up and running. We're talking about Tuesday.

KING: Every time the law is passed it has a thing called an effective date, until that comes about it's funny to watch. Now we're seeing some evidence of it since the financial overhaul law passed. Do you see things out there that you believe the banks are deliberately doing and others are drib lot lay doing to try to create new loop holes or create new fee structures and the like before you're in place?

WARREN: I turn to a study by the Pew Charitable Foundation in which they were studying the responses of the credit card companies to the new pieces of lawful that have come in already in the changes and credit card rules and basically what they said are of all the new rules coming in, the industry had already figured out how to get around most of them by readjusting a little this way, moving a little that way. That is exactly why we have to have a consumer agency. We can't go through this business where you wreck ten fence posts out on the prairie and the banks try to run one way or the other. That's not the kind of relationship we should have with the financial services, it's not good for the consumers, it's not good for the economy, it's not good for the business. What this is really going to be about is an agency that says let's think of a new way to do this, that makes the product simpler, no fine tricks, no traps, no get it out where people can read it, compare them, and may the best product win.

KING: Someone out there who may have had a hard time with their credit card company and sees you in this new job, they may start to ask you this question, and it's this one, what's in your wallet.

WARREN: I have two credit cards and a driver's license and three pictures of my little granddaughters.

KING: Have you ever had a fight with any of those credit companies?

WARREN: Nope. Didn't need to.

KING: One last question in closing.

WARREN: Sure.

KING: Something you wrote in your book a long time ago. You talked about how first lady Hillary Clinton was a great help to you and you were working with some bankruptcy laws back in the day but Senator Hillary Clinton from New York, you said this. As New York's newest senator it seemed Hillary Clinton could not afford such a principle position. Big banks were now part of Senator Clinton's constituency. They wanted her support and she wanted theirs. Is it that easy? Is it that easy that Congress is for sale?

WARREN: No, I don't think that Congress is for sale. I think what's real is what the president said this afternoon in his remarks. You know, when he said that the big banks have had plenty of representatives in Washington. They've been able to make their point of view heard loud and clear. What my appointment is about is to make sure the view of middle-class families is also heard loud and clear.

KING: Thank you for your time.

WARREN: Thank you.

KING: Elizabeth Warren there. When we come back, Erick Erickson backed the tea party candidate in the Alaskan race and the tea party candidate won. Tonight, the Republican who lost will announce a write-in campaign. We'll get Erick's take on that and a big meeting of social conservatives today. Don't go anywhere.

(COMMERCIAL BREAK)

KING: Let's talk about a big day in politics including breaking news tonight with Erick Erickson. He's a CNN contributor of course and editor in chief of the conservative redstate.com. He's at the red state conference in Austin, Texas. Erick, good to see you. You were helpful to Joe Miller. He won the Senate primary in Alaska just last month about three weeks ago. I'm told in a couple of hours, Lisa Murkowski will announce a write-in candidacy. Not since 1954 has anyone been elected to the senate on a write in candidacy. One can do the math. This could be a threat to Joe Miller and perhaps help elect a Democrat.

ERICK ERICKSON, CNN CONTRIBUTOR: Right. I'm wondering tonight if anybody named Murkowski wants to run up in Alaska since she just caused some confusion. Yeah, she's going to write in. It's going to be understanding to see how the senate Republicans respond. If she runs against the Senate Republican nominee I think the Senate Republicans need to strip her of her position on the energy committee. They could make a big deal about taking her out of the Republican leadership but that's kind of meaningless. She's running around the state saying she's going to be ranking the energy committee. They need her to lose the seat so she doesn't have that talking point.

KING: But is it evidence still of the tensions not just in Alaska but in many states. We saw it in Delaware this past week where the tea party and the establishment to win elections in November -- you can win primaries in the spring and summer and into the early fall but to win elections in November, in most places they'd better be on the same page.

ERICKSON: Well, yeah. You know, it's interesting. If you look around the country this year, the story you usually hear is that the conservatives get very angry and they take their football and either go home or go third party. This year you have Bill McCollum in Florida not wanting to endorse Rick Scott. Lisa Murkowski going third party, Charlie Crist leaving the party. Around the country, Arlen Specter jumping ship to the Democrats. The establishment guys from Washington, whether they're Republican or Democrat frankly are so intent on hanging onto power they just can't get it when the voters tell them no.

KING: We have spent so much time looking at the energy in the tea party movement. They have surprised us with candidates from coast to coast. Not heard from much this season have been the social conservatives that have been part of the Republican base for quite some time. A values voters summit here in Washington today. I want you to listen to some of the perhaps future presidential contenders on the right appealing to the base.

MIKE HUCKABEE (R), FORMER ARKANSAS GOVERNOR: We will not be silent on the issue of the unborn and we will not be silent on the value of every human life from the moment of conception to the end of life.

REP. MICHELLE BACHMANN (R), MINNESOTA: People are reclaiming our inalienable rights given to us by almighty god and they're deciding to alter their government. This is a wonderful gift.

MITT ROMNEY (R), FORMER MASSACHUSETTS GOVERNOR: They're trying to fundamentally change the way America works, and we will not let them do it.

KING: The tea party movement has succeeded so far by focusing on spending and taxation and too much power in Washington. Is there any fear in the conservative movement at all that having a sharp focus these past couple of days at this conference on the social issues that don't play well among independents could be troublesome?

ERICKSON: No, not really. I know NRSC Chairman John Cornyn mentioned the as well that independent voters aren't really social issues voters, but you know that's not on the forefront of voter this year. This is just talking to the base. The Democrats do the same, whether they go to a union group or gay rights group or what have you. This is how Democrats and Republicans both talk to the base. Largely it flies under the radar of the independents, and when these people get on the campaign trail they're still talking jobs. But you know you can't win an election with independents. I know we like to talk about wooing independents but you have to get your base there first and you've got to fire up the base.

KING: Give me a sense. You're with the base right there, people who follow your blogs, support redstates.com. Candidates you have supported and done quite well, but that was yesterday. What about from now to the election in the sense? What's the mood?

ERICKSON: You know, the issue I keep hearing over and over is can this energy be sustained, can the tea party be sustained. Yes. People getting here for this conference in Austin are extremely excited about what's coming. The fear now is overconfidence, people wanting to sit at home thinking it's a done deal and it's not. The danger for the Republicans is the danger we've seen for the incumbents. The guys in Washington need to be careful. This is to a degree a revolution. It's a fire. They can get burned. Even the people -- frankly each people like me and Jim DeMint if we're not careful. People who are with the revolution can lose their heads. There are lessons to be learned on both sides. How far out do you go, where do you go and what issues do you push? Right now it is fiscal issues. If the guys who are championing the tea party go to Washington and give up on those issues they're going to get burned.

KING: Erick Erickson, I appreciate your time tonight. I appreciate that lesson in history. We'll see you soon. When we come back, break out the popcorn, a damning new report about stimulus. Here's why you need the popcorn. We'll also have a little Friday night at the movies.

(COMMERCIAL BREAK)

KING: First we'll debate a little substance, then we'll have a little fun. On hand right here our senior correspondent Joe Johns, Republican Rich Galen, he's publisher of the Mullings Report and Neera Tanden from the Liberal Center for American Progress Action Fund. All right. So the vice president today put out another one of his reports on the stimulus program or the recovery act as he likes to call it and he's talking about the top 100 projects around the country. The vice president was very happy and said with recovery projects like these we're starting to turn the page on a decade of failed economic policies and rebuild our economy on a new foundation that creates good middle-class jobs for American families. The administration has been trying for months to convince people this program is working. However a little hiccup here, the Democratic controller of the city of Los Angeles issued a report. They said the city has received 111, $111 million in stimulus funding so far and has created 55 jobs. This is a --

RICH GALEN, REPUBLICAN STRATEGIST: With the city of bell in California, that's about what they're making.

KING: That is hard. 45, 46 days from an election when for this program it's huge to have a Democratic official in a Democratic city say we're not handling this very well.

NEERA TANDEN, CENTER FOR AMERICAN PROGRESS ACTION FUND: Well, that's a little less than ideal, I would concur.

KING: A little less than ideal.

TANDEN: I would say one thing which is in all seriousness. We've had Republicans who talk about the stimulus. Mark Zandi who's done an overall plan and overall amount saying it really did save millions of jobs, and there can be criticism here and there. And really in all honesty, the president and the vice president the vice president said at the beginning there would be issues here and there and there would be problems. Overall we have to look at the entirety of the issue.

KING: It's one of America's biggest cities, though, $111 million. They do expect a couple hundred more down the road.

TANDEN: 100 million out of almost a trillion dollars.

GALEN: And it just makes the controller's case. You spent more money and you can't find the jobs. This cloud of we save jobs, the reality is that the administration is now in this huge box. They successfully got through this enormous package. And they've got nothing to show for it. Zero.

JOE JOHNS, CNN SENIOR CORRESPONDENT: That story in a nutshell is really the administration's problem right now. You put all of this money out there. There's a sense there may be some waste to it or a whole lot of waste to it and you say you're going to create jobs but you're not really creating jobs. And that's the reason why they can't sell their programs because people are not seeing that the economy is improving at their house.

TANDEN: In all fairness for every one story like this, there are 10, 12, 30 stories of new jobs being created at energy plants and --

KING: I'll call the time out here by saying people don't feel it. People don't feel it.

GALEN: These are government jobs.

TANDEN: Energy investment and --

GALEN: If they could only do a census every three months, we would be in great shape.

KING: I'm going to try to end a Friday night on a more civil tone here. We've had so much breaking news this week we haven't been able to do something we like to do. We go through political ads when they come in and I sit in my office and I watch them and try to detect themes across the country, what works what doesn't. So let's do some of that. I have my guests in the house here. It's Friday night. Have popcorn. It's good for you. Generational politics.

GALEN: No beer?

KING: There's some beer in the green room after. What about generation politics play out sometimes. I want to go to Iowa. This is Roxanne Connelly. She's the Democrat in an uphill race against Senator Chuck Grassley. This is a clever way of her trying to say he's been there too long.

UNIDENTIFIED MALE: The year was 1975. The car was the Ford Pinto and the Washington politician, Chuck Grassley. After 35 years Washington sure changed him. KING: It's clever but not the first time somebody tried to say he's outdated. Here's a Barack Obama ad against that guy, John McCain.

UNIDENTIFIED MALE: 1982, John McCain goes to Washington. Things have changed in the last 26 years. But McCain hasn't. He admits he still doesn't know how to use a computer. Can't send an e-mail.

KING: And so how does Senator Grassley respond to that ad calling him a Ford Pinto? This is pretty clever.

UNIDENTIFIED FEMALE: I heard Chuck Grassley has a Twitter.

UNIDENTIFIED FEMALE: Can it be cured?

SENATOR CHUCK GRASSLEY: Not that kind. I don't like to use new technologies like Twitter and Facebook just to keep in touch. And meetings in 99 counties in every year. I'll Tweet. I'll text. I'll do whatever it takes. I work for you.

UNIDENTIFIED FEMALE: Grassley works for us.

KING: I find that incredibly clever. We'll see who wins in Iowa. Bu told fashioned, I visit all 99 counties. Starts off with seniors at the top with a joke and then a younger voter at the end tweeting and Facebook. It's pretty clever.

TANDEN: I would say John McCain did lose so if you're going with track record of older versus younger, maybe it's not helpful to reemphasize that you are actually a much older person.

KING: You'll get a tweet from Chuck Grassley.

GALEN: I love the "Saving Private Ryan" Motorola phone. That was a nice touch.

JOHNS: The humor is good though.

GALEN: The thing about Chuck Grassley is he used to have a 300 acre farm in northeast Iowa. That's his persona. He's going to win.

KING: I hope when he gets Twitter thumb, it doesn't keep him from working the farm. Remember Monty Python, lumberjacks and all that? All right. We'll get to that in a minute. Sean Duffy is a Republican candidate. He used to be in real world Boston. Look at this ad.

SEAN DUFFY: I come from a long line of lumberjacks. My family has a proud heritage of swinging the ax. I've always been quick to take on a big piece of timber and I'm just as ready to tackle big spending in Washington. Our Washington debt has gone sky high thanks to liberals in D.C. I'll work in Congress to cut the spending and balance the budget.

TANDEN: It looks like he's going to fall.

KING: OK. Do you want to have tea party guys or lumberjacks?

JOHNS: Paul Bunyan caucus.

TANDEN: I was worried he was going to fall off.

GALEN: Here's the thing about those ads. At this stage what we all look for is did it move votes. It can be clever. If it didn't move votes it's useless. My guess is that did not.

KING: You guys enjoy the popcorn. As we go to break here and I want you -- you laughed at my Monty Python reference. Ladies and gentlemen --

UNIDENTIFIED MALE: I'm a lumberjack and I'm okay. I sleep all night and work all day.

UNIDENTIFIED MALE: He's a lumberjack and he's okay.

UNIDENTIFIED MALE: I cut down trees.

(COMMERCIAL BREAK)

KING: A couple minutes before the top of the hour and "RICK'S LIST" prime time. Let's check in with Rick Sanchez for a preview. Hey there.

RICK SANCHEZ, CNN HOST: That woman that threw acid on her own face and then blamed it on a black person. For the first time tonight in a very dramatic moment, we'll hear from her family. As you know, John, Sarah Palin is likely going to be speaking during our hour. Will she give hints about running for presidency? You'll see it live right here on "RICK'S LIST." Back to you, John.

KING: All right. It's Friday night. Pete Dominick is out on the street. To be honest with you, I have no idea what he has in store for me. Pete?

DOMINICK: No? All right. Here's the serious question. Obama and Democrats want Republicans to agree on that middle class tax cut. That's the strategy. Why don't the Republicans agree to that? Is that giving something away? I don't understand why they don't compromise on that strategy.

KING: If in the end if they have to vote they'll vote for middle class tax cuts. What they want is to extend all of the Bush tax cuts for those families above $250,000 a year so Republicans are trying to pressure Democrats into extending all of them for two years. This one will play out for a while.

DOMINICK: We don't have time to show video, John. Is Derek Jeter cheating or is that just part of baseball when he -- we got it. Look at this. John King, it clearly hits the bat. I'm a Yankee fan saying this. Clearly hits the bat. Is it cheating or part of the game? I know you're a Red Sox fan. Be fair.

KING: It's cheating and part of the game. The academy awards for fake hits goes to Derek Jeter. This one's not over yet. The Sox are closing in Pete. See you next week. Have a good weekend. "RICK'S LIST" prime time starts right now.